02500cam a22002657 4500001000700000003000500007005001700012008004100029100003000070245012800100260006600228490004200294500001800336520130000354530006101654538007201715538003601787690006501823690013301888700001902021710004202040830007702082856003802159856003702197w10253NBER20180319225020.0180319s2004 mau||||fs|||| 000 0 eng d1 aSchmitt-Grohe, Stephanie.10aOptimal Simple and Implementable Monetary and Fiscal Rulesh[electronic resource] /cStephanie Schmitt-Grohe, Martin Uribe. aCambridge, Mass.bNational Bureau of Economic Researchc2004.1 aNBER working paper seriesvno. w10253 aJanuary 2004.3 aThe goal of this paper is to compute optimal monetary and fiscal policy rules in a real business cycle model augmented with sticky prices, a demand for money, taxation, and stochastic government consumption. We consider simple policy rules whereby the nominal interest rate is set as a function of output and inflation, and taxes are set as a function of total government liabilities. We require policy to be implementable in the sense that it guarantees uniqueness of equilibrium. We do away with a number of empirically unrealistic assumptions typically maintained in the related literature that are used to justify the computation of welfare using linear methods. Instead, we implement a second-order accurate solution to the model. Our main findings are: First, the size of the inflation coefficient in the interest-rate rule plays a minor role for welfare. It matters only insofar as it affects the determinacy of equilibrium. Second, optimal monetary policy features a muted response to output. More importantly, interest rate rules that feature a positive response of the nominal interest rate to output can lead to significant welfare losses. Third, the optimal fiscal policy is passive. However, the welfare losses associated with the adoption of an active fiscal stance are negligible. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aE52 - Monetary Policy2Journal of Economic Literature class. 7aE61 - Policy Objectives • Policy Designs and Consistency • Policy Coordination2Journal of Economic Literature class.1 aUribe, Martin.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w10253.4 uhttp://www.nber.org/papers/w1025341uhttp://dx.doi.org/10.3386/w10253